Features

The Resin Report

By David Savastano, Ink World Editor | October 25, 2005

Higher raw material costs, short supply of some key ingredients and tighter margins continue to be serious issues for ink and resin manufacturers alike.

As was the case with most essential raw materials for the ink industry during the past year, resin costs skyrocketed. Prices for key ingredients ranging from feedstocks to acrylic acid escalated, leaving resin companies with no alternative but to raise their own prices to the ink industry. Even with higher prices, margins continued to suffer.

Pricing was not the only concern. Even at the higher prices, some key ingredients were in short supply. There is little indication that there is better news ahead on pricing, although supply issues have generally subsided. What the future holds remains uncertain.

The Past Year

The ink industry's slight recovery in 2004 provided some good news, at least in terms of volume, for resin makers. Still, margins suffered as a result of higher raw material costs.

"Our resins business experienced a good recovery in 2004 from the previous year in terms of volume," said Phil Runge, product manager, resins, alkyds and web offset vehicles for Lawter International. "With advertising dollars up and demand for our products increasing, we believe that 2005 will be an even better year than 2004, providing that the momentum we are seeing is sustainable. A lot will depend on how demand holds up through the traditionally slower spring and summer. Unfortunately, our profitability has not improved because of the raw material costs."

Photo courtesy of Johnson Polymer.

"The last 12 months have been challenging for the entire ink industry," said Rick Krause, marketing director, printing and packaging, Americas for Johnson Polymer. "While printing and converting activity has been very solid, unprecedented raw material costs across all commodity groups have affected everyone's profitability. Increases in pigment costs, solvent costs, monomer costs and general energy and transportation costs have affected everyone."

"Sales to our graphic arts market were relatively flat volume-wise in 2004," said Robert Clinger, director of sales for Neville Chemical. "Despite our efforts to keep up with petrochemical increases last year, profitability suffered as we were not able to implement increases quickly enough or sufficient to absorb the raw material increases we faced with during the year. 2004 is probably a year that we'd all like to forget. Unfortunately, 2005 started out with feed costs soaring even higher. As oil and gasoline reached near record prices, it appears that pricing pressure will continue. Both ink makers and suppliers will continue to struggle with profits in 2005."

Bill Bayer, vice president, business manager, coatings and graphics, Cytec Surface Specialties, said the radiation curing curing industry faced difficult times last year due to raw material shortages.

"Acrylic acid was the primary material," Mr. Bayer said. "We saw many offshore competitors exit the market, causing a vacuum in supply. The same issues happened to our line of Vancryl waterborne resins. Styrene and acrylates esters pricing escalated as did acrylic acid. All esters went short in the third quarter of 2004. Many resin suppliers were forced to allocate material to existing customers and take on no new customers. Raw material prices escalated rapidly during the year, forcing us to follow suit with our products."

"Overall, the industry suffered last year from feedstock shortages, supply interruptions and rapidly escalating raw material costs, all of which contributed to a chaotic supply situation," said Paul Elias, business director, specialty products at Sartomer Company. "Fortunately, Sartomer was able to keep its customers supplied with all their requirements as well as support their growth. This was due, in large part, to Sartomer's philosophy of maintaining solid, long-term relationships with our suppliers just as we do with our customers. These relationships paid dividends for us and our customers, as we were able to secure all of our raw material requirements, mostly on schedule. However, the supply situation and our commitment to our current customers prevented us from supplying new customers.

"As for the current year, we are continuing to experience increases in raw material prices; however, the supply situation seems to have stabilized and we are not experiencing the shortages that we experienced last year," Mr. Elias added. "In addition, we expect prices will stabilize, probably in the third and fourth quarter this year. We are hopeful of that."

The good news is that growth appears to be continuing.

"In terms of growth, we continue to see demand for the technology grow between 4 and 6 percent depending on market sector in 2005," Mr. Bayer said.

"In general, the North American market showed strong growth in both of our key market areas: coatings and graphic arts," said Michelle Moss, industry manager, adhesives and graphic arts for DSM NeoResins. "This was despite problems in raw material supply and spiraling raw material costs, which impacted predominantly our acrylic technology and product range. Specifically in graphic arts, the packaging market continues to show strength, which we have focused our new product introductions.

"In supply terms, the coming year will be just as difficult, as the high cost of oil will continue and more raw material price increases are predicted with no foreseen relief in this trend," she added.

There were two acquisitions that impacted the resin industry. Cytec acquired Surface Specialties in October 2004, and in February 2005, NeoResins was purchased by DSM (Dutch State Mines) to form DSM NeoResins.

"The acquisition by Cytec should allow us to leverage a larger critical mass against our suppliers for buying our raw materials and services," Mr. Bayer said. "At the same time, because of our broader product offering, we can now become an even more important supplier to our existing customer base."

"We are now part of DSM, so we can investigate new technologies to broaden our product range into new areas and possibly new market segments," Ms. Moss said. "Our move into China is in progress and we will be in a stronger position to serve this market."

Passing Along Costs is Critical for Resin Makers

With all of the raw material price increases resin manufacturers have faced, it was an absolute necessity to pass them along. Still, resin suppliers were not able to recoup all of their costs.

"We had some small success last year in sharing the material increase burden, but were not able to recover much of the costs," said Phil Runge, product manager, resins, alkyds and web offset vehicles for Lawter International. "We have announced a new increase for July of this year. This increase is even more critical than the last since we have started off in a worse position from a margin point of view."

"We've had several increases to the industry over the last year and by and large, we've been successful in their implementation," said Robert Clinger, director of sales for Neville Chemical. "Unfortunately, the increases that we've worked hard to get through aren't sufficiently covering the increases in petroleum feed stocks. Margins to the industry have been slim now for several years and the absorption of these costs are becoming unbearable. We're working hard in many areas to achieve cost reductions in our operation; however, many years of cost reduction and process improvements have reaped most of the low hanging fruit."

"Over the last 12 to 18 months, our raw material costs have increased 60 percent to 70 percent and we have been forced to implement multiple price increases," said Rick Krause, marketing director, printing and packaging, Americas for Johnson Polymer. "However, given the magnitude and suddenness of raw material, transportation and energy cost increases in 2004 and 2005, we have been able to recover only a portion of these cost increases through higher prices."

"We have increased all of our prices consistent with the increases we have absorbed in raw material cost," said Paul Elias, business director, specialty products at Sartomer. "Unfortunately, the timing of our increases prevented us from recovering these cost increases as quickly and as timely as they occurred. But overall, we have passed these increases to all industries, not just the ink industry."

"We have been able to pass along some increases to the ink market over the past 18 months," said Bill Bayer, vice president, business manager, coatings and graphics, Cytec Surface Specialties. "However, we were not able to maintain our margin levels because we're still playing catch-up with raw material cost increases earlier in the year."

"We have had to pass on our increased costs to the ink industry, and the supply situation is clearly communicated and understood," said Michelle Moss, industry manager, adhesives and graphic arts for DSM Neo Resins. "As always, price increases are not readily accepted, but given the market circumstances, the increases are eventually accepted and we see that ink prices likewise have risen."

For resin manufacturers, increasing prices is essential in order to invest in R&D.

"The success of these and other increases is vital if the ink industry not only wishes to see their vendors return to investment economics but continue to invest in R&D and operational improvements in existing infrastructure," Mr. Runge said.

Responding to Challenges

One critical aspect is profitability, and resin manufacturers are working to improve their margins.

"At this point, sustained margin improvement is consuming nearly all of our resources," Mr. Runge said. "We are obviously continuing to invest in technology work, but a significant portion of that effort is now being directed towards formula cost reduction. We need to expand our technology platforms into new areas as a hedge against continued erosion in graphic arts.

Mr. Runge said that Lawter has implemented Lean Manufacturing techniques, taken out fixed costs, reduced waste and is trying to reduce the raw material costs of its resins. "However, the future viability of this business is very much dependent on us being able to pass a meaningful portion of our raw material price increases to our customers," he added.

Mr. Clinger called profitability "the most serious challenge facing the resin industry.

"Our industry invested in the late 1990s in capacity to keep up with the predicted demand growth that we all enjoyed at the end of the last decade," he said. "The downturn in the ink market in late 2000 and the trough that we've been in ever since have caused us to look at our business a lot more critically and look at running it differently that we had in the past."

Mr. Clinger noted that major ink customers are also going through tremendous changes to improve their profitability.

"As partners in this industry, we must try to understand our respective challenges and work co-operatively to maintain our viability," Mr. Clinger said.

"We're working closely with our customers to develop lower cost alternates to our proven products to help ease the sting of the raw material hikes that they've seen in the market," Mr. Clinger said. "Our challenge has been to keep the costs down while at the same time maintaining the quality, consistency and performance our products are known for."

Ink companies are moving forward with their own price increases, which is good news for their suppliers.

"We are seeing that many of the ink companies are finally starting to pass through increases of their own in some segments," Mr. Runge said. "We can only hope that these are supported in the entire industry and especially for the heatset segment."

It appears the ink industry's price increases are sticking, which is ultimately good news for resin suppliers. n

Raw Material Supply is Matter of Concern

While supply remains an important concern, there has been some good news so far in 2005.

"We feel very confident in our ability to supply our customers and their growth in 2005," said Rick Krause, marketing director, printing and packaging, Americas for Johnson Polymer. "We have lifted any remaining sales controls that were effective in 2004. Last fall, we took strategic steps to ensure ongoing global supply of our strategic raw materials so that our customers would know that they could continue to rely upon our ability to supply them. While this cost everyone more, we felt it was our top priority to ensure our customers uninterrupted supply during times of ongoing raw material tightness and availability concerns."

"Acrylic acid, the most widely used raw material, was in extremely short supply last year," said Paul Elias, business director, specialty products at Sartomer. "Because of high demand, unplanned outages as well as insufficient capacity, some suppliers had evoked the force majure clause in their contracts or declared formal allocations. This resulted in an overall shortage of resin supply. Also, as with most products whose demand outpaces its supply, the cost of acrylic acid has more than doubled over this time period and it continues to escalate. We have been advised to expect further price increases throughout 2005. In addition to the acid, we have seen supply tightness and much higher costs across the board for all alcohols and other raw materials. But to date, Sartomer has experienced no supply interruptions in the U.S.; however, we did experience some supply interruptions in Europe."

"As we approach the halfway point in the year, we have yet to see relief in our raw material costs," said Bill Bayer, vice president, business manager, coatings and graphics, Cytec Surface Specialties. "All acrylate-based products are easing from a supply standpoint but not yet to the point of impacting purchase prices."

A major concern is that resin feedstocks are utilized in gasoline, which offers higher value to suppliers.

"Presently, the availability of resin former feedstock used in the manufacture of our products is adequate," said Robert Clinger, director of sales for Neville Chemical. "The major concern looking forward is the value of these feedstocks in fuel blending. Several suppliers have diverted their co-product streams into the gasoline market due to the higher value they are presently able to get in that market. With the long-term prospect of higher gasoline prices, others refiners will likely be evaluating the value of these streams and looking for the best return on their assets. It will be up to us as an industry to demonstrate that the hydrocarbon resin industry a viable and strategic partner to these producers."

New Resin Products

The following listing includes resin products introduced to the printing ink industry in the past year.

New Products:Viaset 211/212
Comments: Viaset 211/212 UV resins work as a grind and letdown vehicle system to give inks good adhesion to non-porous substrates and to give ink good film integrity with scratch resistance.

New Products:NeoCryl A-2082
Comments: NeoCryl A-2082 is a matte acrylic-styrene emulsion for use in low gloss inks and overprint varnishes for flexo and gravure application. NeoCryl A-2082 can be used alone or in combination with other resins to reduce the gloss level or can be used as an alternative to silica as a matting agent.

NeoPac E-200
Comments: NeoPac E-200 is a highly reversible urethane-acrylic HAPs-free dispersion. NeoPac E-200 was developed for lamination and surface printing for flexo and gravure applications. It exhibits excellent adhesion to packaging films and imparts high lamination bonds.

New Products:Joncryl LMV 7031
Comments: Joncryl LMV 7031 is a soft, film-forming emulsion with improved water resistance for surface film printing, and an extension of the Joncryl LMV 7000 series of polymers for low maintenance and pH stable inks on press.

Joncryl LMV 7051
Comments: Joncryl LMV 7051 is a high-gloss, non-film-forming emulsion, and an extension of the Joncryl LMV 7000 series of polymers for low maintenance and pH stable inks on press.

New Products:Ultra-Rez 570 series of improved solubility, high structure phenolic modified rosin esters
Comments: The Ultra-Rez 570 series are highly soluble, highly visco-elastic phenolic modified rosin esters. Their excellent structure generates high gloss while allowing for reduced usage of gelling agents. The high melt point also imparts excellent heat resistance. The Ultra-Rez 570 series resins can be used in heatset gel vehicles as well as coldset vehicles.

New Products:CN2273
Comments: CN2273 is a polyester acrylate oligomer that is designed for very fast cure response in inks and coatings. CN2273 has low viscosity and flexibility with good pigment wetting characteristics. Its unique structure provides natural thixotropic properties for screen and lithographic inks.

SR508IJ
Comments: A dipropylene glycol diacrylate, SR508IJ is especially suited for use in UV ink jet applications because of its low viscosity, high Tg and fast cure speed. SR508IJ is designed to increase the gelation stability of UV formulations at elevated temperatures.

SR9003IJ
Comments: SR9003IJ is a propoxylated neopentyl glycol diacrylate that is ideal for UV ink jet applications because of its low viscosity, low skin irritancy and good performance in UV liquid ink systems. SR9003IJ is designed to increase the gelation stability of UV formulations at elevated temperatures.

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Critical Trends

Consolidation and lower cost products are two key trends that resin manufacturers are watching.

"There are several trends that we have our eye on; the move to lower cost products, the continued consolidation of the entire supply chain and the continued globalization of the ink producers," Mr. Clinger said. "The movement to lower-cost products challenges the entire supply chain to come up with novel ways to produce lower cost inks that provide the performance and consistency the end use customers expect. The consolidation of raw material producers, ink manufacturers and printers has changed the dynamics in how we all do business. With printed pages remaining flat at best, competition for market share up and down the chain continues to intensify. Consolidation will continue. Our customers continue to reach out into regions that challenge our ability to supply them efficiently. For instance, Asia is no longer just a place for our ink customers to buy cheap raw materials - it's a region of the world that offers them new opportunities to make and sell ink to a relatively huge and untapped market."

"The trends in the ink industry are seen in the following: continuing consolidation; expanding product offering into all private technologies; and market stratification into ultra-large and ultra-small suppliers," Mr. Bayer said.

Ink companies are adapting to the changing raw material market.

"The ink industry is really struggling to deal with the broad onset of higher raw material, transportation and energy costs," Mr. Krause said. "Ink companies are still struggling to implement price increases to offset a portion of these costs and are looking at all available means to reduce operating costs while still servicing their customers. Fortunately, there are silver linings amongst the current tempest. Ink companies continue to look at how they can enable their customers to apply color on a printed surface in the most cost effective, environmentally-conscious and printer-friendly manner. Ink companies are optimizing the printed color image, reducing on-press maintenance and pH adjustments, facilitating clean-up and press changeover, and reducing printed and ink waste. Their strategic resin and polymer suppliers are doing what they can to support those efforts through ongoing new product development."

Responding to Challenges

Resin manufacturers are working to meet the challenges that are ahead, beginning with restructuring their businesses.

"Neville has restructured and refocused our efforts on looking for better ways to run our business," Mr. Clinger said. " We have accepted the challenge of lowering costs and improving productivity - we've made great strides and we see more opportunities ahead. New product and new market development is a priority and our management has provided R&D the resources to find a new generation of products that can bring value to our customers. We are aggressively looking into our business and our operations to find ways to use our assets and to make unpleasant decisions if those assets don't have the potential for adequate returns."

Mr. Bayer said that aside from the acquisition by Cytec, which allows Surface Specialties to have better leverage with suppliers and develop a broader product offering, the company is also streamlining its processes.

"We are controlling our costs through a continued emphasis on operating excellence, which involves streamlining our processes and reducing cycle times, while maintaining safety as a focal point," Mr. Bayer said.

Securing raw materials has become an even more critical part of the business.

"The availability of critical raw materials continues to plague some suppliers, and of course, we are all facing higher raw material costs," Mr. Krause said. "Johnson Polymer has made strategic sourcing decisions to ensure our ability to secure our customers' growth in the years ahead and remain the strategic, reliable, quality supplier our customers expect. We remain the leading global supplier to the ink industry and will do whatever we can to maintain the health of our customers' business - the printing and packaging industry is our number one priority."

Creating the new products the ink industry needs is also a challenge.

"Continuing to develop new products that meet the increasing demands of the ink industry is a constant challenge," Mr. Elias said. "This includes not only performance properties, but also cost advantages. Sartomer has a long history of working directly with its customers to develop products that meet their specific needs."